Concerns of Association Health Plans for Small Businesses

July 16, 2018

Learn about some of the controversial aspects of association health plans.

New policies rarely come without some controversy, and when that policy affects something as complex and important as health insurance, there’s probably going to be as many naysayers as there are supporters. Association health plans are no exception. The Trump Administration has recently expanded access to association health plans for small businesses. This could help a lot of small groups and even self-employed individuals get health insurance at cheaper rates, but it also comes with certain risks. Before jumping onto an Association Health Plan (AHP), small businesses should make sure they completely understand the concept of AHPs and the possible risks.

What are association health plans and how are they changing?

Association health plans are arrangements where groups of organizations and individuals get together to provide or purchase health insurance. Because they are buying as a group, these parties can usually get lower health insurance premiums than if they each purchased small business health insurance plans separately. This expands access to small business health insurance while making it more affordable.

Association health plans are nothing new, but they have changed considerably in recent years. Originally, these plans were largely regulated at the state level, meaning their risks and benefits varied widely from state to state. But the Affordable Care Act created new federal standards that association plans had to obey. Designed to cut down on fraud and discrimination, these regulations led to less variation by state in the types of plans available, but raised premiums and reduced flexibility for small businesses that obtained insurance in this way.

Now, the Trump Administration is loosening these regulations and promoting association health plans, notably by allowing sole proprietors and small firms to unite and create such plans. These businesses would be able to either self-insure or purchase plans for large groups; both forms of coverage face less regulation than existing small business health insurance options. As a result, small firms will have more flexibility in choosing the most affordable plans that best fit their needs.

What are the risks and costs of association health plans?

Without the federal standards of the Affordable Care Act, association plans create a number of risks and problems, including:

High Rates of Fraud– Since association plans became popular in the 1970s, health care experts and policymakers have been concerned that individuals would use these plans as a front for fraud. By making it easier to form such plans, the Trump Administration is lowering the barriers for people to create AHPs as a scam. So as a small business considering joining an AHP to gain access to more affordable coverage, make sure you research the legitimacy of the group.

Mismanagement & Insolvency – Even when association plans aren’t fraudulent, they may not be managed effectively, especially if they’re being formed by individuals and businesses with no prior experience offering health insurance.

Discriminatory Coverage – The Affordable Care Act prevents insurers from charging different premiums or offering different levels of coverage based on gender, age, or industry. It also mandates that insurers cannot charge more than three times as much to older enrollees than to younger ones. But under the new rules, it could be easier for association health plans to skirt these regulations.

Less benefits on plans – Under the old rules, association plans had to cover certain essential health benefits, and they had to pay at least 60 percent of their enrollees’ average medical costs. But now, association health plans do not have to meet as many of these coverage requirements, meaning benefits like maternity care and mental health care may not be covered services.

Based on these risks, health policy experts have widely criticized the new rules for association health plans. Keep in mind though, that every plan is different (including AHPs) and you should make sure to take a close look at plan details to see what is included and what’s not.

How will these new rules affect the health insurance market?

With these risks in mind, many small businesses might just choose not to sign up for association plans. According to a report from Avalere Health, the premiums and deductibles in the group health insurance market could see significant spikes due to people switching to the more affordable association health plans.

Association plans are most attractive to healthy individuals who are unlikely to need much care in the near future. But if the healthiest people sign up for them, only less healthy people, who are more expensive to cover, might remain on ACA plans, saturating that market with people who are expensive to cover. This could raise the price of standard plans, potentially destabilizing the Obamacare exchanges, specifically the group health insurance market.

This article is for general information, and might not be updated after publication. For more information on the rise of association plans and to learn more about trends in the health insurance market, visit our eHealth Newsroom. To view health insurance plans and get free quotes, visit eHealth.com.